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The Economy, again!

Well by now you all know that my other hobby is studying the economy, so it'll come as no great surprise that I'm making another post about it here.

The reason is I am convinced we are about to see a significant downturn, and I don't want any of you getting caught up in all the 'recession is over' euphoria that is being peddeled around. The problems are all still here, massive skeletons rattling like mad waiting to jump out of the closet, and when they do it won't be pretty.

Be safe, not sorry, and keep your important savings out of the market for a moment.

I agree! I don't see any fundamental progress just lots of green stuff being printed. I am fascinated by the ultra-nearsighted policy of the feds. There will be consequences, the only question is when.

Be safe, be VERY safe. There is nothing substantial to back up the stock market rally and with unemployment at over 10%, GDP will NEVER get back to 5% plus per year. That is what we used to have. I am scared about the economy and the market and I hate to say it, I think we are going to retest the March lows, maybe even go lower. Until unemployment goes back to 4% or less and GDP is increasing at 5% or more, I am not going anywhere near the market. I sleep better at night!!!

P.S. You might want to go to Pimco's website. The are a unit of Allianze and are the biggest bond trading firm in the world. Bill Gross heads them up. His monthly newsletter is eye opening, and there is lots of other good info on the site.

Snap>>>>>>>>>>>>>>>>>>>

It's tricky, very tricky. As the Treasury monetizes the Debt, inflation will certainly appear and you want equities in your portfolio to hedge that inflation. Corps/stocks can increase their sales prices vs costs therefore improved earnings. On the other hand, Bonds (fixed income) cannot, it's a coupon payment and the discount/premium factor. Whether inflation runs rampant w/in the next 2-3 yrs is questionable. For sure, the Fed and Tres want some inflation to re-establish the housing/comm re industries etc. But the populace must be able to afford, qualify & purchase said property. Uhmmmmmmm??
Lets ee, we've got unemployment @ 15% (inclusive of recipients who have fallen off the rolls yet still unemployed) is a deflationary factor and severe. No simple solutions to complex issues, right? That said, with an Admin and Congress busy "regulating/enforcing" coupled with continued restrictions on credit/leverage the spin and huge amounts of sidelines cash have made this rally.
I took profits last week and expect/hope to buy lower. We see. At the very least, ammunition & gold is wealth insurance, and I'd recommend physical delivery as society could snap if things get worse for the middle class. Read your history guys...it can happen....js

Yes, sadly I know, and this time around my greatest fear is that the pitchforks won't be pitchforks, they be Uzzis and AK47's.

In the more immediate term there are so many dollar bears that I think we'll see a six month run up for the dollar. Even the world bank is putting the boot in, and thats a sure sign for any contrarian that with so little love, the only surprise the dollar holds is to the upside.

On gold, as depreciation really settles in gold historically behaves as all other commodities, and shrinks in value. I say wait a few months for gold to get under $700 before stocking up, and from there it should go up to around $2,000 over the following years.

The best thing to do now is pay down all debt, everything. I wish I could, I can't yet, but that is my dream, and my goal. I think residential property has another 30% to fall, maybe as much as 60% in commercial, and the shocker will be agri, that hasn't fallen since the 30's, but it's going to get mullered too, maybe as much as 65%?

I'm sure that the market will break well below the springs lows over the next six months. All the problems of last autumn still abound, changing mark to market rules fools no one, debt is debt, is debt, and it is hard to dodge without massive bailouts. More massive bailouts should lead to a serious rethink of why we need the private banking cartel known as the Fed to be stealing our money for their errors. Government Sachs, as it's called these days, and all the other banksters on Wall St, need get their noses up out of the trough of deceit that has dragged us all into this terrible mess, and keep their eyes peeled for incoming, because a very violent storm is hiding right behind the horizon, and very few seem to realize just how fast it is moving in.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

I agree with Andrew about paying off as much debt as possible, starting with the highest interest loans "credit cards" and then going down the ladder. With interest rates as low as they are, you can't get a higher sure fire rate of return on your money. I count my blessings everyday: no auto debt, no credit card debt, no mortgage, and plenty of money in the bank. It is very comforting to know that you do not owe anybody anything. I am going to continue to max out my SEP IRA every year, but I am still laddering my CD's and waiting for the stock market to tank again. I hope it doesn't, but it's coming.

Someone is starting to ask the right questions...

Finally the world is catching on. The Federal Reserve is a privately owned banking cartel, it is not a government agency. It is an atrocious con trick being played on the American public. It is run almost entirely by GS alums, and are crucifying the American economy with their greed.

I also highly recommend reading Ron Paul's recently released End the Fed, its a great short read.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

So... any one concerned about the G-20 results and how we now appear to have very little influence or say in world affairs any more? Seriously, the USA amounts to at least 24% of the world economy and GDP 3 times larger than Japan (second largest economy) and our GDP is equal to that of 13 of the G-20 combined. And we only have one vote. Hmmmm..... something is wrong here. Now, our president seems to have agreed to that our economic policies will also be subject to review, comment and approval by the IMF!!!

Somehow grossly lop sided not in our favor. The EU has 5 votes minimum but Turkey is there too who wants EU Admission but we sit there with only one vote???

I understand we live in a global economy but when we give away this much power and influence in the world, and in particular, to the review of our economic policies by leftist, socialist or autocratic societies, the only thing left to give away is our freedom, is that next?

Well sort of, you see the bankers (banksters) are trying to take over the world in a silent coup, and in large part are succeeding.

The entire idea of the UN, and the IMF can be traced to the Rothchilds and the Rockerfellers, two of the most powerful and influential banking families. (Along with the Schiffs & Warburgs they are the majority owners of the Fed, which is a privately held banking cartel.)

All they care about is world domination through the control of money, thats it. Freedom, irrelevant. Politics, a punch and Judy side show they sponsor to distract the masses from what they are actually trying to do.

Sinister, frightening and sad, yes. We are living in a time of great evil, those same money changers Jesus (a devout Jew) tried to throw out of the temple are about to take over the world, and it won't be for anyone's good but their own.

Sadly we are powerless to do anything about it, that is the worst part of all the reading and learning I've been doing, it has made me realize that their will is it, there is no recourse, we just have to survive within it.

It amazes me that the health insurance companies, who themselves are each a death panel, have got away with spending 380 BILLION dollars on lobbying against being held accountable, that is money we have given them to save our lives when we're ill, and yet no one in this country but me seems to see a problem here.

I guess growing up in a country where we had medicine for everyone, even though it was often basic, inefficent and often undesirable, I still can't get my head around the death panelling, fraud of the health insurance industry in this country. It seems to me America is quite content to accept the most appalling criminal cabals profiting from thier pain and loss, so why should the bankers worry?

The IMF will own us all, through the ownership of our debt, but how many people will ask who owns the IMF? If you do you'll find the same families that were behind the establishment of the Fed in 1916.

Seriously I think the history of the formation of the Fed should be required reading for every citizen, America needs to wake up, now.

The 45 minute clip I linked to above is an interview with Edward Griffin, the author of The Creature. He pretty much covers everything in the book and more in the interview, it is very well edited in terms of the info presented. I met him at a lecture here in LA two years ago, he is an incredible researcher and historian.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

well, power is power and to change this - well it would take Teddy Roosevelt, Harry Truman and Genghis Khan all rolled into one person and then a ton of money to switch this power play. Or call all notes held by the Fed and IMF as invalid and have an exchange of dollars for dollars (1 for 1). Anything less, will go flat or be ignored.

Very simplistically, we should have had our governments shaft the bond holders and set-up mutual societies to fund businesses short term capital requirements, dropped corporation tax significantly for businesses that didn't make redundancies, and abolished personal taxation for 1-3 years for anyone coming back into work after long term unemployment. Also instead of selling assets and borrowing money they should have been buying assets that came out of the banking liquidations that would have swiftly followed. Naturally they would never have the guts to do something like that so they stuck with the status-quo

You are very correct Skelly, although I'm not sure how your "mutual societies" would have been set up or worked, but, for sure, it would have been better than a complete devaluation of the USD. Stimulation thru across the board tax cuts is the most helpful & direct they could do. BUT, we know it's not about the "fix" as it is about the "POWER". This whole Reich including the Dovish Fed, is about supporting the Unions and to hell with fundamental econmics and monetary policy. We are so screwed it's frightening.
JS

Over 80 small banks have folded, taken over by the walking dead, the Too Big To Fail. The FDIC is on the rocks and the fraud of the privately owned Fed banking cartel and the Goldman-Saks alum mafia is starting to be realized by the people.

We are heading into very interesting times.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

The FDIC is now officially in the red!!! They are going to stay there until at least 2012, according to the experts. They won't fail, it would cause complete chaos and instability, so the Fed will just keep printing money if necessary.

'mutual societies' are something we have (or rather had as there aren't many/any left here) in the UK (where I was from, I just moved to the Isle of Man). The idea is along the lines of a bank run for the express purpose of helping it's customers. i.e. all the customers are effectively shareholders in the business.

Rather than a bank which is run for the express purpose of making as much money as possible out of it's customers and putting it in the pocket of the majority shareholders.

I was involved in some interesting discussions about setting up a new mutual here in the UK with the purpose of supporting SMBs. Our crazy plan was to raise at least ?100 from each member of the Federation of Small Business (FSB) which with approximately 200,000 members would work out at approx. ?22m and then try and raise the rest (you would probably need at least tripple that amount) from the wider business community. Then switch-over all our banking to the new business and the transactional revenue flowing through would be quite substantial. The cool part is that it could apply for funding from UK GOV to meet 40% of the risk of any loans it gave out to qualifying customers which would allow some leveraging of the initial pool of money. We also wanted to add other services that would help businesses succeed by doing things like b2b billing (reducing cash flow requirements by automating and speeding payments), offering another option other than just loans by copying the Zopa (syndicated micro-loans between members) business model but instead of it being on a loan basis have it as equity investments), etc. see: http://www.fsb.org.uk/discuss/forum_posts.asp?TID=2343

Well as long as everyone is having their moment on the soap box...I used to work at the World Bank and am now senior management at one of the larger financial instutions of the world. I have many friends working in senior positions at the Fed and IMF. I used to work closely with the former vice chair of the Fed. So, I guess I am an insider in the banking world.

I can tell you there are plenty of large egos driven by greed to do stupid things in this industry. It is exacerbated by a "well if everyone else is doing it, I'd better do it too" mentality. However, in all my years, I have never experienced any sort of conspiracies or secret societies.

What happened this past year was truly remarkable. We were incredibly close to a total melt down--not just because of the losses, but because of a lack of liquidity--all the tradional sources of funding just dried up entirely and traders had been relying too much on funding long term assets with short term debt--eg. commercial paper and repos. The fed and the treasury really had to step in aggressively--we were that close to a total melt down.

Unfortunately we have now created a dangerous precedent of the government guaranteeing the debt of "too big to fail" banks. The only way out of this mess is we can no longer have banks that are too big to fail. We also need to make sure that banks do a better job of managing their liquidity--so far risk management has focused on loss management.

Great comments ZMates, and I'm sure too that the days of the Masons, the Illuminati etc are long behind us, and the power of most of the families that founded the Fed has most likely been seeded to the banks/corporations they created. The influence of the Rothchilds and the Rockerfellers is still pretty evident in things like the creation of the UN, World Bank, CFR, Trilateral Commission and of course the Bilderberg Group.

While I don't in any way disagree with your perspective, I would suggest that it is similar to that of an honor student in a top university. You are the life blood of the institution, your success is its everything, and it rightly celebrates and rewards that success, but like the honor student, you won't necessarily know who the guiding hands are behind the establishment itself.

There are two things I'm still not at peace when it comes to banking.
!.) The fiat monetary system that debases its value consistently through inflation.
2.) Faction reserve banking. I believe that if I give you a dollar, you have the right to lend a dollar.
The idea that I give you a dollar, get 1% interest, and you get to lend ten (or 30 if you're on Wall St) at 5% is simply wrong on so many levels.
It also mirrors the folly of The Tower of Babylon, which is what we almost had last year, and may yet have next year.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

Again, I can only speak from experience, but I do know the BOD well and I can assure you at least at my institution that there is nothing fishy. They come from a wide ranging background--both geographic as well as industry. This is done to ensure that the guidance they provide is neither insular nor predetermined. And they also serve terms around 3 years on average. The discussions at the BOD and Executive committees where actual decisions are made are about nothing but making good business (not always easy to say what good business is). The largest shareholder (an investment fund) owns 5% and has no undue influence. The Rothschilds own a couple small private banks and are not serious players in the banking industry. I don't even know of any involvement of the Rockefellers.

If you think about it...what exactly can a bank control? Banks are only intermediaries. If they want to lend out 1 dollar, they need to find someone else who will loan them 1.10 dollars in the form of cash deposits, certificates of deposit, bonds, or else by packaging the loans into securities and selling them. You could say that banks control the world by determining who gets loans and who doesn't, but banks only lend to small businesses and individuals. Large companies raise their capital directly on financial markets and only use banks for their cash management. Senior management don't influence individual loan decisions--how could they, there are just too many?

The IMF on the other hand only lends to developing market governments that can't borrow directly on financial markets because of their histories of poor (populist) fiscal and monetary management. The value added of the IMF is that when they lend, it is under conditions that fiscal and monetary policy are responsible. This makes the IMF unpopular in developing markets because being responsible is decidedly unpopulist. In this case, the IMF certainly does exert significant influences on an ever smaller list of countries, but the policies enforced are developed by people who are products of the US economics PhD system--a bigger bunch of pasty white policy geeks out to save the world you will never find. I know because I went to school with a lot of them.

I know from the outside, the financial industry is opaque, mysterious, and complex. But like most things, it is a lot simpler than it seems.

If the American banking system were composed of smaller (small enough to fail?) banks. And the FDIC, had paid out those customers, would it have cost us as much?

The direct cost would have probably been about the same. The real problem is now the government has set a precedent that they will step in if one of the big financial institutions gets in trouble and effectively ensure the debt of these firms. The government was already explicitly guaranteeing deposits and CDs, now they are implicitly guaranteeing the debt as well. This means they will be able to borrow at low interest rates regardless of how much risk they take and that will create incentives for them to raise lots of debt and take lots of risk. This was exactly the situation with Fannie Mae and Freddie Mac. They had an implicit gaurantee on their debt from the government and so they could raise funds by issuing bonds at an interest rate that was a fraction of a percentage point above what the government was paying. So they sold lots of bonds and took lots of risk and then left the government with the problem when things went bad. Now we have every large financial institution in the same boat. And it is worse because small institutions don't have this implicit guarantee and will not be able to compete against large institutions.

You can try to stop this behavior from happening with tighter regulation, but regulation is a bandaid not a solution. You can never really control things from the outside. Setting the right incentives is the only way to ensure banks do the right things and in this case we have made the incentives far worse.

The good news is that governments realize this problem and are doing something about it. It looks like rather than setting limits on how large a company can be, they will just make it too expensive to be big by having higher capital requirements for large banks. This would also allow smaller banks to compete.

And lets not forget the real cause of this crisis is irresponsible behavior of US consumers. The banks just made that behavior possible.

yeah but....

Originally Posted by ZMates

And lets not forget the real cause of this crisis is irresponsible behavior of US consumers. The banks just made that behavior possible.

ALL the banks and bankers are complicit in this problem and IMHO, are the root of the problem including even the small and medium size banks. That coupled with the poor regulation by the government you eloquently mentioned above and greed of Wall streeters to want to package/buy and sell all of that debt created a system that was not sustainable.

All of that relaxed lending rules propagated by all three branches of the US Government (and endorsed by and lapped up by partners in the EU and around the world) made it possible for people in the US and elsewhere to obtain loans for housing in particular, that they and actually the banks, really could not afford to make. But, lend away the BANKERS did as they had NO risk as they could just package the debt up collectively and someone on wall street (including the Big banks and institutions like Lehmann Bros.) just bought and sold away without the capital reserves necessary to hold that debt. But, in the "days of old" like 30 - 40 years ago when savings and loans were king of the home mortgage market, these loans would have never been made as someone had to be credit worthy, have a vested interest like 20% down, and the banks held the debt internally as the did not package or sell the debt. Then comes the politicians.... making promises so that the lower socioeconomic strata that they too can achieve the "American Dream" and creating bad legislation to make that possible. Of course the housing industry itself lapped that up, which is why the American Home builders Association is one of the largest monetary contributors to many reelection campaigns (like Barney Frank) so that it will continue and why the problem is not over by a long shot (one of the widely used criteria the government is using to measure "recovery" is housing sales, i.e., more and more loans, and credit, credit, credit --- more consumer debt, debt, debt).

Most people do not have a clue how this stuff works and hence rely on bankers to help them determine whether they truly can afford the note or to borrow, whether it be a house, a car or whatever. IF the lenders said, "you don't qualify" because of sound lending practices, then this will not happen again.... sadly, I see no likelyhood of that happening.

Who exactly do you think the bond holders are? Is it possible that they are made up of the common man through their personal investments, pension funds and 401K's? How would "shaft"ing the bond holders have helped those individuals? Their real estate and equity investments had just come back to earth due to the popping of the speculative bubble and now you suggest that tapping out the only investment that they had that was working was the thing to do... Do the individuals that speculated on real estate that they could never afford share any blame? How about the person who purchased the 50 inch flat screen on a credit card that never planned to pay off the TV but just calculated that they could make the minimum payment necessary on the card? I for one am tired of living in a world where people are no longer responsible for their irresponsible decisions. Clearly there is plenty of blame to go around, but try not to forget those who borrowed more then they could afford in the final analysis.
Look back to my post the week or so after Lehman tapped out and you will see that the exact themes I pointed out then have come to the front. It will be a long time before the world economy recovers completely from the fact that the over extended American consumer can no longer be the engine of world growth. If the emerging markets do not pick up the slack with domestic consumption their economies will crumble in the next 24 months. The weak dollar is here to stay, as is the pound.

John & Ouray, it is a joy to get such great insight from within, as my economic reading is mostly from those outside, looking in. (Baseline Scenario, RGE Monitor & Sudden Debt being my main sources).

While there is blame a plenty to go around, that is all in the past. What really matters now is how do we, as a group who have a lot to loose, best protect what we have.

Are we heading for inflation, deflation or stagflation? I've read very compelling arguments for all three written by those with far great knowledge than I, so I just don't have the experience or wisdom to know what to prepare for. If it isn't in anyway a breech of your professional code of conduct, I think we would all love to get both your hunches on what the next few years have to bring, and how best we can navigate it as individuals.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

Ouray, I agree that for sure multiple sectors are responsible including irresponsible borrowers, as there were many but had better regulation and lending practices been in place, many of these bad mortgages that lead to foreclosure. But in my experience, people will always have tendency to live beyond their means because of desire for a better life and "easy credit" just feeds that desire even more, hence the need for reasonable regulation and lending rules and regulations to prevent this from happening again. I certainly think that since the bond market was even adversely affected in all of this too that even those bond holders would have appreciated less over all risk too from all of those Credit default Swaps. There will always be irresponsible borrowers, irresponsible investors, etc. so any regulation has to start at the beginning point to in particular, not give credit to people who really and truly are not credit worthy and to make sure that for those that are, they do not borrow beyond their means and that includes credit cards in addition to mortgages. I hate government regulation but some of it is needed to protect people from themselves and their own stupidity.

Agree with many of your points. There were definitely some stupid decisions made by bankers that enabled this mess. However, do you really want bankers or governments rationing credit? In my view credit should be available to everyone at a price that properly reflects the risk of the borrower. Why should I be denied credit because someone else doesn't know how to manage their finances? I agree it would protect some people from themselves, but it would penalize others.

One also has to recognize a cultural aspect to all this...why is it anglo saxon countries have such high personal debt?

While I do have a PhD in economics, it's really not my profession, but like everyone else I do have opinions on the topic (and love to talk about them):

1) Don't believe all the hype that is going on in the media about money supply and inflation. Apart from hyperinflation, inflation is a real phenomenon. Prices rise when demand exceeds supply in product, labor, and or commodity markets. Currently all three markets are slack, so if anything we will see deflation in the short term. If someone tells you inflation is linked to money supply ask them to show you the link in the data.

Medium to long term, though there is no doubt in my mind that extracting commodities to meet increasing demand is going to get more expensive and quickly--e.g. having to mine and drill ever deeper for metals and oil. This trend is unavoidable and I believe these cost increases are more quadratic than linear in nature, so commodity price inflation should accelerate. Excess labor supply in developing markets is also being used up quickly.

2) I am short the equities market and there are so many reasons for that I don't even know where to begin. I do, however, have credit exposures to financial services names I feel confident in. You can still get some outstanding returns at low risk here if you know enough about the balance sheets of the companies.

As with health, when the economy is good we take it for granted, and barely notice its workings, but when all isn't well it commands all our attention.

If civilization were a single organism, money would be its life blood, which makes this crisis of lending rather like a stroke. John & Ouray are closer to the operating theater than we are, so it is certainly great to get their feedback, and it also underlines what a great cross section of really accomplished individuals we have on the board.

I just hope we can all pull through it ok!

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

Excess capacity is a global issue at this point, but one can also point to excess dollars floating around the globe. While the US dollar is the global reserve currency the weakness being exhibited in the dollar today is a function of both slow domestic economic recovery prospects (so interest rates will remain low compared to the rest of the developed world), and the fact that we have been sending dollars overseas by the tanker load for a decade as evidenced by the US trade deficit. On a note we can all relate to, the weak dollar vs. the Euro is the very reason that you see Z8's making the trip back across the Atlantic to Europe as American Z8's are on sale compared to purchasing one in Europe. The weakness in the US dollar will ultimately lead to higher import prices and the theory goes that the US will reduce imports and ultimately start to increase exports. Some of this has already occurred but sadly our economy has become a service economy and is no longer a manufacturing economy. Unfortunately it is very difficult to export services and since China tends to enforce intellectual property rights at best infrequently it will be difficult the Dollar to turn around anytime soon.
As for credit, as was mentioned in another post, it should be priced according to the risk. Legislate that everyone is entitled to the pay the same price for credit regardless of their credit history and you will be setting the foundation for a replay of this decade. The cornerstone of the housing bubble in my opinion was not only cheap credit but the fact that the tax free exemption on profit from a home sale was increased dramatically. This gave people the clear path that the government was going to reward your speculation on homes with tax free treatment and then add in the easy terms on credit that became available this decade and the recipe for disaster was complete.

Absolutely Ouray, with the help of Peter Wallison I respond. The link to the financial crisis?recently emphasized by Obama?is that these mortgages would not have been made if regulators had been watching those fly-by-night mortgage brokers. Mortgage brokers had to be able to sell their mortgages. They could only produce what those above them in the distribution chain wanted to buy. In other words, they could only respond to demand, not create it themselves. Who wanted these dicey loans? The data shows that the principal buyers were insured banks, government sponsored enterprises (GSEs) such as Fannie, Freddie, and the FHA?all government agencies or private companies forced to comply with government mandates about mortgage lending. When Fannie and Freddie were finally taken over by the government in 2008, more than 10 million subprime and other weak loans were either on their books or were in mortgage-backed securities they had guaranteed. An additional 4.5 million were guaranteed by the FHA and sold through Ginnie Mae before 2008, and a further 2.5 million loans were made under the rubric of the Community Reinvestment Act (CRA), which required insured banks to provide mortgage credit to home buyers who were at or below 80% of median income. Thus, almost two-thirds of all the bad mortgages in our financial system, many of which are now defaulting at unprecedented rates, were bought by government agencies or required by government regulations. And now, our transitional period of "recovery" from a "V" shape to a most certain "W" has begun...and who are we bailing out now?
As far as I'm concerned the Gov't ( & G7) is SOLEY responsible for not only the first disaster but the soon approaching second wave of chaos as well. Combine this fiasco w/the other world events and well, it's mind boggling, very real and very interestingly scary. We see, Jim

I agree completely,

Originally Posted by Ouray

As for credit, as was mentioned in another post, it should be priced according to the risk. Legislate that everyone is entitled to the pay the same price for credit regardless of their credit history and you will be setting the foundation for a replay of this decade. The cornerstone of the housing bubble in my opinion was not only cheap credit but the fact that the tax free exemption on profit from a home sale was increased dramatically. This gave people the clear path that the government was going to reward your speculation on homes with tax free treatment and then add in the easy terms on credit that became available this decade and the recipe for disaster was complete.

and was not advocating letting everyone pay the same price for credit -- absolutely not!! Risk is risk, and if they implemented what you describe above, these bad loans would not have been made as the "price of entry" would be too great to those who could least afford it.

So those that borrowed irrational amounts of money have no responsibility because they should have not been allowed to borrow it? I agree with you points about the supply and demand for this type of credit, and the governments misguided role in all of this, but I still feel strongly that the consumer has a share of responsibility in all of this.

Red Z8 said it best last year not too long after this whole mess started. He simply stated that those who live within their means will be fine. Very phrophetic words indeed. The consumer who borrowed beyond their means is very much to blame. Even with agressive, persuasive salesmen trying to sell you a car or a home loan, you know or at least should know if you can afford to do it and should also take into account if you can afford it if something were to go wrong, such as loss of job, unexpected health problems, ect. If you can't afford it, don't buy it!!

I agree, ...

Originally Posted by Ouray

So those that borrowed irrational amounts of money have no responsibility because they should have not been allowed to borrow it? I agree with you points about the supply and demand for this type of credit, and the governments misguided role in all of this, but I still feel strongly that the consumer has a share of responsibility in all of this.

but when credit becomes "too easy" with relaxed and truly risky lending standards makes the temptation to great for those that can least afford it. The rationale that "all the banks are doing it and we should too" just feeds a bad lending strategy by all the mortgage companies and just made it all too easy to travel down this path we were on.

Yes, consumers have a huge responsibility to bear and when someone bites off more than then can chew, the can get bitten, including loosing all the equity and being upside down in the mortgage or having to default. And, IMHO, the government should not be propping up these industries and allow the market "reset" as it naturally would. Yes, that would mean some very lean times for some, and not for others and a redistribution of ownership for those that were prepared but that is the way capitalism is supposed to work ... not this government sponsored never ending spending of tax dollars into this bottomless black hole that.... based on the above chart, will require another 700 billion dollars to try and stop it.

CAPMARK financial, one of the largest commercial real estate lenders, has just filed for Chapter 11. This used to be an arm of GMAC but was spun of some years ago. Bad commercial loans has just brought down one of the biggest lenders in that part off the business.

Just finished reading a fascinating book called "Too Big To Fail' by New York Times financial reporter Andrew Ross Sorkin. It is an account of the build up to and the day by day events of last year's financial crisis, the people involved, the instituitions, ect. It is about 550 pages long and it is riveting reading. I couldn't put it down and finished it in three days. It is amazing how close the United States and, for that matter, the world, came to a complete collapse of the financial system. At one point in September of last year, Secretary of the Treasury Paulson and Fed Chairman Bernanke told President Bush on a Saturday that the banks were not likely to open that Monday! A must read if the topic interests you.

By the way, financial guru Wilbur Ross predicts huge commercial real estates losses in the U.S. in the very near future.

CAPMARK financial, one of the largest commercial real estate lenders, has just filed for Chapter 11. This used to be an arm of GMAC but was spun of some years ago. Bad commercial loans has just brought down one of the biggest lenders in that part off the business.

This is not quite what is seems or how it's been reported. The bankruptcy is just a way of facilitating the breakup of Capmark. Berkshire Hathaway and Warren whathisname had agreed to purchase most of Capmark's commercial lending component before the bankruptcy.

This is a fascinating read...

The FDIC, who themselves are now bleeding red ink after taking over another four banks this weekend (that makes 120!) issued this official guide to big banks last month to try to deal with debt restructuring for both commercial and residential real estate.

It make for very interesting reading, and it could be a great slice of information to have in your back pocket incase you have a friend in need.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

Well, how bad is it? In my life this is the worst it has ever been. In thirty years of doing business I have never been this dead, and it isn't just me, almost everyone I work with is dead too, hire studios, equipment houses, you name it. If it continues like this for much longer I think it will be life changing in a very unpleasant way for many people I know and work with, myself included.

This very sobering story was forwarded to me today...

It?s About the Death of Small BusinessNovember 6th, 2009 By David Goldman

As I said on Larry Kudlow?s CNBC show Wednesday night, the big issue in the US economy is the massacre of small business. That?s why the household survey shows that 558,000 Americans ?became unemployed? during October, while the establishment survey of payrolls shows a decline of only 190,000 jobs. The establishment data, which are collected from larger businesses, are more reliable; the household survey is based on telephone interviews with randomly-selected households. But the numbers are so large as to make clear that small businesses are shutting down.

With commercial and industrial lending by American banks down 13% since September 2008, and most banks continuing to ?tighten lending standards? in the Fed?s official poll, this is not surprising. Wal-Mart will make it through a recession; not the tea-cozy shop down the mall corridor, much less the real-estate agency in the half-abandoned exurb. The global speculative grade default rate, as Moody?s reported this week, has risen to a post-Great Depression high of 12%. Credit lines for small businesses (including home equity, credit cards, and all the other devices entrepreneurs use to fund themselves) will continue to shrink.

Numerous analysts have made the point that in all previous post-war recoveries, it was small business that led job creation. During the 1980s and 1990s large businesses lost employment and small businesses grew. The fact that job losses at small business are evidently far higher than those at large businesses does not make this look like any recovery at all.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

I watched Roubini on Bloomberg the other day. He is no fan of Ben Bernanke. He said as long as the Fed keeps printing money and interest rates stay artificially low, the DOW may stay propped up because investors are looking to get a better rate of return on their money than near zero. I still see a second wave coming that will be as bad if not worse than last year's meltdown, so I am still in capital preservation mode. The market scares me and I would rather get a little return and maintain my capital than lose half in the new coming crash.

P.S. Did you see where Golden Slacks, I mean Goldman Sachs, has apologized for their role in the financial crisis and to try and make amends, and for good PR, they are starting a half a billion dollar fund to loan money to small business? Very interesting!

Wow, truly amazing. The corruption on Wall Street, now backed by our Government, is astounding. Market manipulation is alive and well and true regulation is nowhere in sight. I am not so sure Geithner was the short seller of Bear Stearns, but that group of bankers that met at the New York Fed on that September day surley must know who the culprit is. This article just reinforces what I strongly believe and that is that the small investor, or even big investors for that matter, are at the mercy of a small number of Wall Street crooks who control the market at will with no real oversight of their very shady dealings. I don't know if I will ever trust the market again. It may be tempting to go back in if it falls again, but knowing the type of corruption that exists makes me want to stay in my laddered CD's for the rest of my life. I may not be getting a big return, but at least my money is not at the mercy of a handful of crooks!

Well, the laddered CD's are only as safe as the Bank they are held in, which is also controlled by the same Fed and only as safe as the Fed, i.e., as in the FDIC, which is hemorrhaging red ink too these days given the number of bank failures in the past 2 years. I am not convince money is safe anywhere so Gold is looking safer and safer, but only if you have your own Fort Knox at home!

Yes, the FDIC is bleeding red, but they are currently charging the solid banks dues through 2012, which will raise 45 billion dollars. Also, they have access to another 500 billion dollars at the Fed, 100 billion of which needs no approval by any Governing body. I have had many talks with my financial advisor about the safety of money in the bank and he said if the FDIC fails, there will be rioting in the streets. Most of my money is with U.S. Bank and they, according to Bauer Financial, which rates banks depending on how strong they are, are in no danger of failing. Basically, the way I see it is we are either going to get through this mess or in the event of a total financial collapse, God help us all.

An absolute must read...

This story in the Telegraph-UK is on a report prepared by one of France's most powerful banks, Soci?t? G?n?rale, and it outlines their worst case scenario of global economic collapse.

By Ambrose Evans-Pritchard
Published: 6:12PM GMT 18 Nov 2009

Soci?t? G?n?rale tells clients how to prepare for potential 'global collapse'.
Soci?t? G?n?rale has advised clients to be ready for a possible "global economic collapse" over the next two years, mapping a strategy of defensive investments to avoid wealth destruction.

Explosion of debt: Japan's public debt could reach as much as 270pc of GDP in the next two years. In a report entitled "Worst-case debt scenario", the bank's asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.

Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of "deleveraging", for years.

"As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.

Under the French bank's "Bear Case" scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.

Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade. (UK figures look low because debt started from a low base. Mr Ferman said the UK would converge with Europe at 130pc of GDP by 2015 under the bear case).

The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing populations will make it harder to erode debt through growth. "High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt," it said.

Inflating debt away might be seen by some governments as a lesser of evils. If so, gold would go "up, and up, and up" as the only safe haven from fiat paper money. Private debt is also crippling. Even if the US savings rate stabilises at 7pc, and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s.

The bank said the current crisis displays "compelling similarities" with Japan during its Lost Decade (or two), with a big difference: Japan was able to stay afloat by exporting into a robust global economy and by letting the yen fall. It is not possible for half the world to pursue this strategy at the same time.

SocGen advises bears to sell the dollar and to "short" cyclical equities such as technology, auto, and travel to avoid being caught in the "inherent deflationary spiral". Emerging markets would not be spared. Paradoxically, they are more leveraged to the US growth than Wall Street itself. Farm commodities would hold up well, led by sugar.

Mr Fermon said junk bonds would lose 31pc of their value in 2010 alone. However, sovereign bonds would "generate turbo-charged returns" mimicking the secular slide in yields seen in Japan as the slump ground on. At one point Japan's 10-year yield dropped to 0.40pc. The Fed would hold down yields by purchasing more bonds. The European Central Bank would do less, for political reasons.
SocGen's case for buying sovereign bonds is controversial. A number of funds doubt whether the Japan scenario will be repeated, not least because Tokyo itself may be on the cusp of a debt compound crisis.

Mr Fermon said his report had electrified clients on both sides of the Atlantic. "Everybody wants to know what the impact will be. A lot of hedge funds and bankers are worried," he said.

A really good clean, clear thread of thought...

This elite has been around since the nation began, becoming increasingly dominant as the 19thcentury progressed. A key date was passage of the National Banking Act of 1863, when the system was put into place whereby federal government debt was used to collateralize bank lending. Since then we?ve paid the freight through our taxes for bank control of the economy. The final nails in the coffin came with the passage of the Federal Reserve Act of 1913.

In 1929 the bankers plunged the nation into the Great Depression by constricting the money supply. With Franklin D. Roosevelt as president, the nation struggled through the decade of the 1930s but did not pull out of the Depression until the industrial explosion during World War II.

After the war came the Golden Age of the U.S. economy, when the working man, protected by strong labor unions, became a true partner in the prosperity of the industrial age. That era lasted a full generation. The bankers were largely spectators as Americans led the world in exports, standard of living, science and space exploration, and every measure of health, longevity, and culture.

Roosevelt had kept the bankers subservient to the interests of the economy at large. The Federal Reserve was part of the New Deal team, and interest rates were held at historic lows despite a large federal deficit. One main impact was the huge increase in home ownership. After World War II, the G.I. Bill allowed home ownership to grow further and millions of veterans to attend college. The influx of educated graduates led to productivity growth and the emergence of new high-tech industries.

But the bankers were laying their plans. In the early 1950s they got the government to agree to allow the Federal Reserve to escape its subservience to the U.S. Treasury Department and set interest rates on its own. Rates rose throughout the 1950s and 1960s. By the time of the interest rate hikes of 1968, the economy was slowing down. Both federal budget and trade deficits were beginning to replace the post-war surpluses. High interest rates were the likely cause.

In 1971, President Richard Nixon removed the dollar?s gold peg, allowing the huge inflation resulting from oil price increases that the international bankers engineered through control of U.S. foreign policy when Henry Kissinger was national security adviser and secretary of state. Nixon?s opening to China resulted in early agreements, also overseen by banking interests, to begin to transfer U.S. industry to overseas producers like China which had cheap labor costs.

By the mid-1970s, the U.S. had been taken over by a behind the scenes coup-d?etat that included events in 1963 when President John F. Kennedy was assassinated by a conspiracy that could only have been instigated by the highest levels of world financial control. In the election of 1976, David Rockefeller succeeded in placing fellow Trilateral Commission member Jimmy Carter in the White House, but Carter upset the banking community, thoroughly Zionist in orientation, by working toward peace in the Middle East and elsewhere.

I was working in the Carter White House in 1979-80. Unbeknownst to the president, Federal Reserve Chairman Paul Volcker, another Rockefeller prot?g?, suddenly raised interest rates to fight the inflation the bankers had caused by the OPEC oil price deals, and plunged the nation into recession. Carter was made to look weak and uninformed and was defeated in the election of 1980 by Republican candidate Ronald Reagan. It was through the ?Reagan Revolution? that the regulatory controls over the banking industry were lifted, mainly in allowing the banks to use their fractional reserve privileges in making mortgage loans.

Volcker?s recession shattered American manufacturing and hastened the flight of jobs abroad. Under the ?Reagan Doctrine,? the U.S. military embarked on an unprecedented mission of world conquest by attacking one small nation at a time, starting with Nicaragua. Global capitalism was also on the march, with the U.S. armed forces its own private police force. With the invasion of Iraq under George H.W. Bush in 1991, mainland Asia was revealed as the principle target.

The economy was floated by productivity gains through computer automation and a huge sell-off of assets through the merger-acquisition bubble of the late 1980s which ended in a recession. This resulted in the defeat of Bush by Bill Clinton in the election of 1992. Clinton was able to create another bubble through a strong dollar policy that attracted foreign capital.

The dot-com bubble that resulted lasted all the way through to the crash of December 2000. Meanwhile, the U.S. Air Force led the way in the destruction of the sovereign state of Yugoslavia, whereby the international bankers took over the resource wealth of the entire Balkan region, and the U.S. military gained forward bases for further incursions into Asia.

Do we need to say that none of this was ever voted on by the American electorate? But they bought into it nevertheless, both with their silence and through participation in a generally favorable job market in the emerging service occupations, particularly finance.

By the time George W. Bush was inaugurated president in January 2001, the U.S. was facing a disaster. $4 trillion in wealth had vanished when the dot.com bubble collapsed. NAFTA caused even more American manufacturing jobs to disappear abroad. The Neocons who were moving into key jobs in the Pentagon knew they would soon have new wars to fight in the Middle East, with invasion plans for Afghanistan and Iraq ready to be pulled off the shelf.

But the U.S. had no economic engine available to generate the tax revenues Bush would need for the planned wars. At this moment Chairman Alan Greenspan of the Federal Reserve stepped in. Over a two year period from 2001-2003 the Fed lowered interest rates by over 500 basis points. Meanwhile, the federal government removed all regulatory controls on mortgage lending, and the housing bubble was on. $4 trillion in new home loans were pumped into the economy, much of it through subprime loans borrowers could not afford.

The Fed began to put on the brakes in 2003, but the mighty work of re-floating a moribund economy had been accomplished. By late 2006 another recession loomed, but it would take two more years before the crisis of October 2008 brought the entire system down.

The impact on the job market was immediate and profound. By the time Barack Obama was elected president in November 2008, the U.S. was mired in seemingly endless wars in Afghanistan and Iraq, and the worst recession since the Great Depression was picking up speed. In order to prevent total disaster, the Bush administration ended its eight years of catastrophic misrule with a flourish, by allocating over $700 billion in financial system bailouts to cover the bad loans the banks had been making since Greenspan gave the housing bubble the green light.

It is now November 2009. Since Barack Obama was inaugurated in January, unemployment has soared from 7.9 percent to 10.2 percent. A few hundred billion dollars were allocated for ?stimulus? purposes, but most of that went to pay unemployment benefits and to keep state and local governments from laying off more employees.

A fraction has been distributed for highway improvements, but largely through the bank bailouts the federal deficit has been running at an annual rate of $1.5 trillion, by far the largest in history, with the national debt now topping $12 trillion. Ironically, those Americans who still have productive jobs continue to grow in efficiency, with productivity up over five percent in the last year.

So much federal money has been spent that the Obama administration has been struggling to make its health care proposals budget-neutral through a raft of new taxes, fees, and penalties, and by announcing in recent days that the government? first priority must now shift to deficit reduction. The word ?austerity? has been mentioned for the first time since the Carter administration. Yet Congress voted $655 billion in military expenditures to continue fighting in the Middle East. A U.S. military attack on Iran, possibly in conjunction with Israel, would surprise no one.

So where do we now stand?

At present, the Federal Reserve is trying to prevent a total economic collapse. Interest rates are near-zero, to the chagrin of foreign investors in U.S. Treasury securities, and close to half of new Treasury debt instruments have been bought by the Federal Reserve itself as a way of providing free money for federal government expenditures.

But the U.S. economy shows no signs of coming back, with no economic driver emerging that could bring it back. For all the talk about alternative energy, there has been no significant growth of any home-grown industry that could possibly make up so much lost ground in either the short or the long-term.

The industries in the U.S. that are holding up are the military, including arms exports, universities that are attracting large numbers of students from abroad, especially China, and health care, especially for the aging baby boomer population. But the war industry produces nothing with a long-term economic benefit, and health care exists mainly to treat sick people, not produce anything new.

None of this provides a foundation that can bring about a restoration of prosperity to 300 million people when the jobs of making articles of consumption are increasingly scarce. On top of everything else, since government inevitably looks to its own requirements first, the total tax burden continues to increase to the point where the average employee now pays close to 50 percent of his or her income on taxes of all types, including federal and state income taxes, real estate taxes, payroll taxes, excise taxes, government fees, etc. Plus the cost of utilities continues to rise steadily and threatens to skyrocket if cap-and-trade legislation is passed.

The Obama administration has no plans to deal with any of this. They have projected a budget for 15 years hence that shows the budget deficit decreasing and tax revenues going way up, but it is all lies. They have no roadmap for getting us there and no plans for following the roadmap if it portrayed a realistic goal. And yet the U.S. military is still trying to conquer Asia. It is madness.

And it is madness because the big decisions are not made by the U.S., by Congress, or by the Obama administration. The U.S. has, for half-a-century, been marching to the tune played by the international financial elite, and this fact did not change with the election of 2008. The financiers have put the people of this nation $57 trillion in debt, according to the latest reports, counting debt at the federal, state, business, and household levels. Interest alone on this debt is over $3 trillion of a GDP of $14 trillion. Failure of our political leadership to deal with this tragedy over the past three decades is nothing less than treason.

But then again, at some point the decision was made that the U.S. and its population would be discarded by history, the economic status of the nation reduced to a shadow of what it once was, but that its military machine would be used for the financial elite?s takeover of the world until it is replaced by that of some other nation. All indications are that the next country up to bat as military enforcer for the financiers is China.

There you have it. That, in my opinion, is the past, present, and future of this nation in a nutshell. Great evils have been done in the world in the last century, and there is nothing anyone can do about it.

Except?. and that?s what each person caught up in these travesties must decide. What are you going to do about it?

In mulling over this question, it would be wise to recognize that the dominance of the financial elite has largely been exercised through their control of the international monetary system based on bank lending and government debt. Therefore it?s through the monetary system that change can and must be made.

The progressives are wrong to think the government should go deeper in debt to create more jobs. This will just create an even deeper hole of debt future generations will have to crawl out of.

Rather the key is monetary reform, whether at the local or national levels. People have lost control of their ability to earn a living. But change could be accomplished through sovereign control by people and nations of the monetary means of exchange.

This control has been stolen. It is time to take it back. One way would be for the federal government to make a relief payment to each adult of $1,000 a month until the crisis lifted. This money could be earmarked for goods and services produced within the U.S. and used to capitalize a new series of community development banks. I have called this the ?Cook Plan.?

The plan could be funded through direct payment from a Treasury relief account without new taxes or government borrowing. The payments would be balanced on the credit side by GDP growth or be used by individuals to pay off debt. It would be direct government spending as was done with Greenbacks before and after the Civil War without significant inflation.

Another method increasingly being used within the U.S. today is local and regional credit clearing exchanges and the use of local currencies or ?scrip.? Use of such currencies could be enhanced by legislation at the state and federal levels allowing these currencies to be used for payment of taxes and government fees as well as payment of mortgages and other forms of bank debt. The credit clearing exchanges could be organized as private non-profit regional currency co-operatives similar to credit unions.

These would be immediate emergency measures. In the longer run, sovereign control of money and credit must be returned to the public commons and treated as public utilities. This does not mean exclusive government control to replace bank control. As stated previously, it would be done in partnership between government and private trade exchanges. Nor does it mean government takeover of business, industry, or the banking system, though all should be regulated for the common good and fairly taxed.

This program would lead to a new monetary paradigm where money and credit would be available by, as, when, and where needed, to facilitate trade between and among legitimate producers of goods and services. In this way trade and commerce will come to serve human freedom, not diminish it as is done with today?s dysfunctional partnership between big government trillions of dollars in debt and big finance with the entire world in hock.

Such a change would be a true populist revolution.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

Perhaps I have been brain washed by the "powers that control the world" but I find this far from a clear stream of thought. It appears to me to a a collection of observations interspersed with loosely accurate facts to support a theory that there is a cabal that controls the world.

As for the "Cook" plan of giving $1,000 per month to individuals until the end of the crisis, I am lost as to how that does anything other then spike the debt that he started the rambling diatribe on towards the end of his comments. " The financiers have put the people of this nation $57 trillion in debt, according to the latest reports, counting debt at the federal, state, business, and household levels. Interest alone on this debt is over $3 trillion of a GDP of $14 trillion. Failure of our political leadership to deal with this tragedy over the past three decades is nothing less than treason."

You may well be right, but when you look at his resume, it is even scarier if he is, because he has sat in some seats of influence along the way. I'm not at all sure about his solution, because I honestly don't grasp exactly how he sees it working, or what its sustainable benefits are, however the historical background info in the post certainly matches up with the Mises/Rothbard/Mullins/Griffin/Arron & Ron Paul take on the history of our system since the formation of the Fed in 1916.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

Considering the decline of Print Newspaper industry and hence of true "investigative journalism", it is hard to believe that "Rollingstone Magazine" is publishing this type of news and is assuming that role in our society.

I know, it has always had a sharp journalist edge, but having Taibbi on board has totally reinvigorated the magazines standing at a time when not that many people would be racing out to buy a music mag.

Much has been been made of this and the GS pieces in the economic blogs I visit and it turns out that Taibbi has been on this path for a long time, he was in Moscow reporting on Russia back when Yeltsin was working his mad mi$chief, and has been basically following all the same players/crooks for almost twenty years! Based on his last three stories I think he is poised become the most important journalist of our times.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

I agree on the years of politics in RS, but this is finance. it controls politics, as we are now seeing. Finally America is becoming aware of how our system functions in all its horse trading dishonesty, and that is the only way change happens, be it personal change, or societal.

Step 1. Awareness, the truth must be faced, regardless of how harsh and unpleasant.

I hope that this mess will actually bring about real change, not the kind of phony change that populates Washington with Wall Street insiders as just reward for buying a presidency. I don't call that change, it's just the same trade off, only different, to the guns and oil fueled Haleburton White House.

Andrew Macpherson

Expert Z8 Inspections, with full support for both Z8 sale and purchases.

Considering the decline of Print Newspaper industry and hence of true "investigative journalism", it is hard to believe that "Rollingstone Magazine" is publishing this type of news and is assuming that role in our society.